Hello, and welcome to the RingCentral Second Quarter 2021 Earnings Conference Call and Webcast. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Ryan Goodman, Head of Investor Relations.
Please go ahead, sir.
Thank you. Good afternoon, And welcome to RingCentral's Q2 2021 earnings conference call. I'm Ryan Goodman, RingCentral's Head of Investor Relations. Joining me today are Vlad Shmunis, Founder, Chairman and CEO Anand Eswar, President and Chief Operating Officer and Mitesh Dhruv, Chief Financial Officer. Our format today will include prepared remarks by Vlad Anandimitesh followed by Q and A.
Some of our discussions and responses to your questions will contain forward looking statements, including our Q3 and full year 2021 financial outlook and our assumptions underlying that outlook. These statements are subject to risks and uncertainties. Actual results may differ materially from our forward looking statements. A discussion of the risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission and is incorporated by reference into today's discussion. In particular, Our business is currently being impacted by the COVID-nineteen pandemic.
The extent of its continued impact on our business will depend on several factors, including the severity, duration and extent of the pandemic, the success of vaccination efforts, as well as actions taken by governments, businesses and consumers in response to the pandemic, all of which continue to evolve and remain uncertain at this time. RingCentral assumes no obligation and does not intend to update or comment on forward looking statements made on this call. Unless otherwise indicated, all measures that follow are non GAAP with year over year comparisons. A reconciliation of all GAAP and non GAAP results is provided with our earnings release and in the slide deck. I encourage you to visit our Investor Relations website at ir.
At ringcentral.com to access our earnings release, slide deck, our GAAP to non GAAP reconciliations, our periodic SEC reports, a webcast replay of today's call and to learn more about RingCentral. For certain forward looking guidance, a reconciliation of the non GAAP financial guidance to the corresponding GAAP measure is not available as discussed in detail in the slide deck posted on our Investor Relations website. With that, let me turn the call over to Vlad.
Good afternoon and thank you for joining our Q2 earnings conference call. We can establish a track record of consistent quarter over quarter growth for 30 quarters and counting. And Q2 'twenty one was no exception. RingCentral delivered another great quarter with RingCentral Office ARR growing 41% year over year to $1,400,000,000 This is our highest level of growth in 5 years. It is also an acceleration in growth of 5 points year over year of a base of over $1,000,000,000 we also delivered a record number of 1,000,000 plus TCB wins, including one with over $10,000,000 So what is driving this performance?
Customers are looking for cloud solutions to manage 2 things, their communications needs and their collaboration needs, each with distinct characteristics. For businesses, It all begins with communications capabilities, the central nervous system of any enterprise. Market opportunity is massive with over 400,000,000 legacy PBX users in place. Stable stakes to deliver in this space are exceptionally high. Rich functionality, Security, Five9's Reliability, Quality of Service, Platform Analytics, enterprise app integrations and regulatory compliance are staples offer an enterprise grade PBX system.
Businesses require all of these core capabilities, but also require them on a mobile friendly platform. Selecting a communications platform is a critical enterprise wide decision. Just as companies have a single corporate wide e mail platform, companies usually choose one communications platform for the entire Company. The communications platform may not be a disparate, silent line of business decision. A purchasing decision requires a rigorous proof of concept and analysis, which is where RingCentral excels based on our proven industry leadership and track record of excellent delivery.
With over 3 quarters of on premise sales historically done through channels and global carrier partners, the customer buying preference for cloud solutions continues to be through these trusted partners. And RingCentral lead here with our unique go to market partnership network. And as a definitive proof point, over 2 thirds of our 7 figure TCV wins were brought in by the channel and partners. As for collaboration, there is key messaging and video conferencing. Team messaging improves internal message interactions and file sharing.
Use of these capabilities has increased with modern mobile, distributed and hybrid working environments. As we've all learned over the past 18 months, video conferencing provides a viable alternative to in person meetings. Users require an easy and reliable way to connect with high quality video, audio and screen share, along with core features like waiting rooms, breakout rooms, virtual backgrounds, etcetera. Additionally, as the world returns back to the office, video conference room solutions that support hybrid meetings are a must have. RingCentral is well positioned to address both communications and collaboration needs of modern enterprises with our differentiated message video phone or MVP platform.
This is complemented by our unique GTM strategy that now includes some of the world's best known incumbent PBF providers and leading carriers amongst our strategic partners. So, why do we win? Well, here is a tip. It's about trust, innovation and partnerships. 1st, trust.
Trust with enterprises is established over multiple years with consistent delivery of reliability, security and data privacy. RingCentral has delivered a track record of 5.9 uptime over the last 12 quarters. This equates to around 5 minutes of downtime a year with no exclusions for maintenance windows. This track record is simply unmatched in the industry and it is literally 100 times better than the 3 9 or close to 9 hours of downtime that many of our competitors offer. As for security and data privacy, we will let our clean multiyear record speak for itself.
Through continual investments in security, reliability and data privacy, we have built one of the world's most trusted global communications platforms. Next, innovation. RingCentral has always been committed to a rapid pace of innovation. Our years of outside R and D investing in a modern, scalable cloud based architecture have enabled us to meet the stringent requirements expected of a leading enterprise communications system. Crucially, In addition, we have a complete portfolio of cloud contact center solutions that includes our proprietary digital service engaged platform, as well as solutions from our partnership with NICE Incontact.
Recently, we expanded and expanded our relationship with NICE inContact to include additional WFO and WFM capabilities, which is contributing now to our Significant contact center win momentum in large enterprises. Next on the topic of collaboration, We now have the next generation award winning video conferencing solution, RingCentral Video with over 250 new features introduced since launch in April last year. This includes virtual backgrounds, waiting rooms, closed captioning and many more. And we are now beginning to leapfrog with innovative new capabilities like team huddles, advanced web browser support and live switching between devices with more to come on this front soon. Rooted in this innovation and product strength, momentum for RCV is picking up across multiple fronts.
1st, all new customers get the integrated MVP platform with RingCentral Video. And customer response has been excellent. In fact, customers choose us for the integrated MVP platform and many of the $1,000,000 plus TCV wins cited RCV as a key influencing capability is the decision to go with RingCentral MVP. 2nd, we are making solid progress on migrating our installed base accounts of MVP customers from prior generation video to RingCentral video. We recently crossed the half May mark in this transition.
As a case in point, C and F Wholesale, the largest wholesale grocery supply company in the U. S. Is now in the process of upgrading its user base of over 5,000 RingCentral MVP users to our CV. 3rd, our partners. Early in Q2, Adas announced a Vidya solution based on RCV.
And later in Q2, Deutsche Telekom selected RingCentral Vydia for its own co branded Vydia solution for its customers. We are optimistic that this trend will continue and additional strategic partners will line up and endorse our CV. And on that note, our partnerships. Our partnership oriented go to market is enabling us to quickly and efficiently scale our global market reach. In Q2, our direct and partner ARR, which includes contributions from Avaya, Atos, AT and T, British Telecom and TELUS grew 34% year over year to $860,000,000 This is a strong acceleration in growth of 9 points year over year.
And we're confident that this is just the beginning of a multiyear successful journey. Our unique go to market network continues to expand. We have had several exciting partner updates in recent months. First, we announced a new strategic partnership with Verizon Business. Verizon Business has already launched RingCentral with Verizon, a co branded cloud based UCaaS solution for their enterprise customers.
This also speaks to our unique ability to onboard major carriers quickly and efficiently. 2nd, Alcatel Lucent Enterprise launched Rainbow Office powered by RingCentral in the U. K. And third, we announced a partnership with Deutsche Telekom where we'll introduce a standalone co branded video solution based on RingCentral Video. Of course, all of these partnerships are based on their collective recognition of RingCentral's industry leading standards of trust and innovation.
In closing, we delivered an exceptional Q2. And with our speed of innovation, Along with the fact that most of our strategic partnerships are in the early or pre launch phases, we feel confident that the cloud is winning and RingCentral will continue to be winning in the cloud. With that, I will now turn the call over to our President and Chief Operating Officer, Anand Atvaran, for additional color on our recent progress. Thank you.
Thank you, Vlad. Good afternoon, everyone. Q2 results and execution were exceptional across the board. But before I dive in here, I want to talk about the foundation of RingCentral, our people and our products. On the product side, we've just been named as the best UC platform and best UCaaS provider as well as a top 2 collaboration platform as part of the UC Awards 2021.
As a matter of fact, RingCentral has been named the best UC platform 3 years in a row now. And our talk to finish on the collaboration side is exceptionally gratifying, given that we have entered this area relatively recently. Most importantly, as for
the people,
Comparably's annual survey for large companies recently ranked RingCentral as the number one engineering team and the number 2 sales team for a total of 11 awards. Additionally, Ladd was named amongst the top 2 CEOs for diversity and amongst the top 6 CEOs for women. We are incredibly proud and humbled by these awards. A core strength which has contributed to the exceptional success at RingCentral are our people and our exceptional leadership bench strength. On that note, I'm proud to share 3 new Executive Vice President Promotions, recognizing exceptional performance and a proven record of success, in addition to the top talent we have attracted to RingCentral.
Carsten Hofstetter is being promoted to Executive Vice President and Chief Revenue Officer. Karsten has been with the company for over 5 years, in which time he has built our enterprise business from the very beginning to over $500,000,000 today. Fazahuele is being promoted to Executive Vice President and our 1st Chief Customer Officer. Shreza, who has been with RingCentral for over 10 years, has a strong track record of building the SMB business for RingCentral with a customer obsession that makes her the ideal candidate for RingCentral's 1st ever Chief Customer Officer. Humayun Razavi is being promoted to Executive Vice President and Head of Global Service Providers.
In 18 months with RingCentral, Humayun has accelerated our partnerships with AT and T, BT and TELUS, as well as established new strategic relationships with top tier providers, including Vodafone Business, Verizon Business and Deutsche Telekom, amongst others. All 3 will be directly reporting to me. We thank Phil Sorgen for his contributions and wish him well as he embarks on a new chapter in his life, working with nonprofits and the venture community. We are also excited that Phil will be joining RingCentral's advisory board. Now, on to Q2.
I will highlight 5 key areas of our exceptional quarter. First, partners where we saw contributions continue to ramp across of strategic and carrier partners. 2nd, our channel community, which delivered another strong quarter. 3rd, Our upmarket customers, where we are winning a higher volume of large deals, the wins are getting bigger and the sales cycles are improving 4th, increasing traction with our integrated UCaaS and CCaaS offering with both new customers and our installed base. And 5th, accelerating momentum for RingCentral MVP integrated with Microsoft Teams Direct Routing, which is effectively opening up incremental upmarket opportunities.
Let me now dive into some details. I will begin with our strategic partners where we saw great momentum with multiple $1,000,000 plus wins across our strategic and carrier partners. This contributed to our record breaking number of 7 figure wins, a notable accomplishment to achieve in Q2. In Q2, Avaya Cloud Office by RingCentral had another strong quarter of solid growth in new seats, new accounts and transaction volume. ACO is seeing solid traction with businesses of all sizes and from both new and existing customers, including a notable win for over 12,000 seats, with a Fortune 500 freight transportation company who moved from an Avaya on premise solution to Avaya Cloud Office.
Atos also delivered a solid Q2 with strong ARR growth in our upmarket segment. We are pleased with how this partnership is progressing and look for contributions to continue to ramp. As for Alcatel Lucent Enterprise, Rainbow Office powered by RingCentral launched in the UK, and we will be launching additional countries in the coming quarters. As for global service providers, we see a generational opportunity here as many top providers are now looking for their next generation UCaaS platform. This is especially urgent as GSPs are introducing revolutionary 5 gs technology to the world.
Given our recent successes with top tier providers like Verizon Business, Vodafone Business and Deutsche Telekom amongst others, as well as a strong pipeline of new deals, we believe RingCentral is emerging as the preferred new cast platform for this important strategic community. As to AT and T, BT and TELUS, they have all had strong quarters led by upmarket traction and strength in key verticals, including retail, healthcare and manufacturing. An example of our momentum is our win through BT with the Ardona Group, the UK's largest independent insurance distribution platform, where we will together provide integrated UCaaS and CCaaS for over 3,500 users and 800 contact center agents. We also continue our long standing momentum with the channel community. Our channel partners delivered another great quarter, resulting in robust ARR growth of 52% year over year and reaching $571,000,000 These strategic and channel partnerships provide RingCentral with an important an effective go to market motion that may also prove difficult for others to replicate.
They are also essential
in reaching our rapidly expanding mid market and enterprise customers where we delivered 51% year on year growth to $877,000,000 in ARR. And we are seeing large deal strength in verticals with the most stringent platform requirements like Financial Services and Healthcare. They accounted for about 1 quarter of the $1,000,000 plus TCV events. Looking ahead, we entered the second half with our enterprise pipeline at a high level, fueled by strong demand for both our UCaaS and CCaaS solutions. On that note, continued traction for our integrated UCaaS and CCaaS platform contributed to triple digit new logo growth for our RingCentral Contact Center and Engage Solutions.
We have recently extended and expanded our partnership with NICE Incontact. Our partnership is rooted in years of joint development, integration and market learnings. RingCentral continues to be uniquely positioned to offer customers the world's only deep integration of Gartner Magic Quadrant leading UCaaS and CCaaS solutions. Based on these trends, in Q2, we had a great contact center driven win with Amerisave, a leading mortgage lender. Amenistave selected RingCentral to provide a more scalable integrated UCaaS and CCaaS platforms across nearly 4,000 users, including of 2,000 contact center agents.
Building on this momentum from Q2, the month of July has been a very strong start for our contact center business for Q3. In fact, we have closed multiple deals over $1,000,000 in TCV just in the last two weeks. Another area of strength for Q2 was our integration with Microsoft Teams Direct Routing. Direct routing is proving to be an effective go to market motion that is creating incremental opportunities, particularly in upmarket, where customers require enterprise grade cloud communications and contact center capabilities, and has contributed to multiple $1,000,000 plus TCV wins last quarter. In conclusion, Q2 was simply a fantastic quarter.
And with our continued commitment to trust, Innovation and partnerships, we feel confident in our ability to continue leading in this unique $50,000,000,000 plus market opportunity. With that, I will turn the call over to our Chief Financial Officer, Mitesh Dhruv.
Thank you, Anand. Good afternoon, everyone. We had a great Q2 and all key metrics came in above the high end of our guidance. Subscription revenue grew 37% year over year, up 5 points from the prior year. And non GAAP operating margin was about 10%, are 90 basis points above our guidance, demonstrating the leverage in our model, especially as our partnerships start to scale.
This again puts us well above the rule of 40, which is particularly rewarding at our $1,500,000,000 revenue run rate. We've consistently achieved this metric for the last several years and it continues to provide an important measure of our profitable growth success. Our positive growth trends are the result of robust win rates with new customers as well as strong retention rates with our existing customers. On the new logo front, we had multiple vectors. First, enterprise new logo strength.
This contributed to our enterprise ARR base getting close to 600,000,000 and growing 60% year over year. 2nd, accelerating strategic partner contributions. Direct and partner office ARR grew 34%, an acceleration of 9 points versus prior year, and we are just getting started. Avaya is still in its early days, Atos is just starting to ramp, Alcatel Lucent Enterprise is in the process of training and rollout, Verizon just launched in the last 2 weeks and Vodafone and Deutsche Telekom are still pre launch. So strictly speaking, many of our unique growth vectors have yet to play out.
3rd, our momentum with international is picking up. We had a record number of international over $1,000,000 TCV wins this quarter. Several of these wins were joint wins with our key partners, which is a testament to the effectiveness of our partner oriented strategy. And 4th, contact center, where we continue seeing strong traction for our deeply integrated best of breed UCaaS and CCaaS platform. Our new logo strength along with contributing to a standout Q2 also sees future expansion opportunities.
As for some latest retention trends, cohorts of upmarket customers that we've added over the past completed year have already expanded by greater than 50%. This positive net retention was driven by more seats, more products and low churn. On that note, gross churn across our entire business was at a multiyear low. This is a result of our stronger focus on customer success, product stickiness, as well as implementation of AI enabled tools, which provide predictive analytics on customer health metrics across the entire customer base. In addition to accelerating revenue growth, profitable growth remains a core tenet of our financial model to drive healthy long term margins.
We saw several robust underlying trends in Q2 on that front. First, ARPU held steady across the business. 2nd, sales and marketing efficiency improved. This was a result of higher sales rep productivity as well as lower cost of book tied to the strategic partner ramps. And 3rd, we benefited from efficiencies of scale in other operating expense items.
These levers provide us the ability to invest in innovation and growth as well as have a clear path to margin expansion in the long term. Putting it all together, we are landing more large customer wins, customers are expanding at a high velocity and the churn is at a multiyear low. These strong and improving unit economics are enabling us to deliver both revenue growth acceleration as well as margin expansion, defining the Typical growth versus margin trade offs associated with SaaS models. With this backdrop of positive momentum, increasing visibility and higher confidence we are raising our 2021 outlook. We are increasing total revenue growth to 30% to 31%, up from 27% to 28%.
We are increasing subscriptions revenue growth to 31% to 32%, up from 28% to 29%. We expect non GAAP operating margin of 10% to 10.1% and we are raising our non GAAP EPS to $1.28 to $1.30 up from $1.24 to 1.27 We are benefiting from the intersection of a massive opportunity, a structural acceleration in global demand and a SaaS model with attractive improving unit economics. Case in point, 1 year ago, we were slightly over the rule of 40. Today, with subscription revenue growing at 37% and operating margins over 10%, we are operating at nearly a rule of 50 on a much higher base. Looking ahead, with new growth drivers and multiple margin levers still to come, we believe that we are well positioned to become a multibillion dollar revenue company with profitable growth.
Before I turn the call back to the operator, I'd also like to give a big thanks to all of the employees at RingCentral. Your exceptional work and consistent execution make this all possible. With that, let's open the call for Q and A.
For technical difficulties, lines are now live.
Hello, Kevin. Can you poll for Q and A?
Yes. Ladies and gentlemen, we'll now be conducting
a question and answer session. Our first question today is coming from Brian Peterson from Raymond James. Your line is now live.
Thanks for taking the question and congrats on the really strong results. So, first one maybe for Mitesh. So, you're operating close to the rule of 50 now. You just raised your implied outlook for the back half of 'twenty one versus your prior outlook. Maybe unpack what's given you the confidence to raise the outlook in the back half of the year?
Thanks, Brian. So, yes, overall, if you look at the guidance, there's no change to our guidance philosophy. We've always kept a healthy dose of prudence and optionality in the guide. So, no different this time as well. I mean, in terms of the bullishness and the upside drivers to the guidance, maybe I'll break it out in 2 buckets.
A roll forward from the strength we saw in Q2, which is natural given the recurring revenue model and then increased visibility we have for the second half. So on Q2, our enterprise business, if you look at it, is now the fastest piece of our business, around $600,000,000 and growing at 60%. It's growing of all the pieces we have. And we're seeing large deal momentum driven by seats and products. And this deal momentum is coming across the board from Avaya, Atos, contact center, international and all our GSPs.
So this momentum we expect to continue going forward in
the back half. And And
then in terms of the second half visibility, which has also increased for us, we are seeing a stronger pipe, we are seeing stronger conversions, and we are seeing stronger retention trends. And with our partnerships, we are just starting to ramp. So we will see this benefit even beyond 2021. So on the heels of a strong Q2 performance, along with the increased visibility we have for the second half, it does give us confidence to raise the guide for Q3 and Q4 and hopefully perform even better.
Well, it sounds like a lot
of good things going on And so Anand, maybe just one for you on the channel. We did see the ARR kind of incrementally pick up versus what we've seen in prior quarters. Any way to kind of unpack or just kind of describe what's going on there in the channel? Thanks guys.
Yes, absolutely, Brian. So I would probably say 3 quick things. One is the velocity of onboarding new channel partners has continued. So our channel base is getting larger. The second thing I would say is, Mitesh talked about this large deal momentum.
Over 2 thirds of them actually came from our channel and partners. So we're seeing larger deals come through the channel in a meaningful way.
And the third thing I
would say, which is sort of the icing and the cake, is that there's meaningful improvement in velocity and conversion rates. That is also helping how they're showing up in quarters. So that's what I'd call the offer.
Kevin? Brian, is
there a way for us to look at calls?
Seems like the system on their side is crashing, is a notification I'm getting.
So, just have to wait.
Time to switch it to RingCentral Systems for them as well, Matt.
Thank you. Our next question comes from Bob Ansuri with William Blair. Please proceed with your question.
Thank you. Can you guys hear me okay? Yes. Now we can the line.
Yes, sure.
Great. And maybe it is time
to switch to RingCentral. We did that for a while with the video offering. I don't know why you guys didn't keep that going, but anyway, maybe next time. Let me echo my congrats. Obviously, great numbers across the board.
I'm going to be quick here, obviously, because we've had a couple of issues. Vitesh, really quickly for you. I I think you mentioned that the higher end, the core analysis of your larger customers, net dollar retention rate was 150%. That's Amazing, given sort of the products we sell and things like that. It's rare.
We haven't seen that at all in the space, even from you guys in the early days. So help me sort of understand what's driving that 150% and sort of how customers sort of driving that growth? That'd be great to get a little color
Sure, Bhavan. So definitely a very encouraging sign to have an expansion rate of 150% on the most recent cohorts we are seeing, it's a couple of things, right? We are seeing more upsells of seats, more cross sell of UCaaS and CCaaS together and lower churn. And in fact, if you if I unpack it even one more click, the 2020 cohort, In that cohort, we've added nearly the same dollar expansion as the combined cohorts for 2018 2019. So almost 2x expansion there.
There are, I would say, a couple of reasons for this. One is, these new customers who have come onto our system in the last year, they have experienced the full power of the platform, MVP, message, video, phone, and there's tight integration across all modes. So these customers are using all modes, they're upselling more and they're stickier. So that's point 1. Point 2 is, these customers who came on during COVID, they have sort of survived the COVID onslaught.
And so, the businesses naturally are healthier and tend to have a much higher lifetime value naturally because they survive this whole thing. So as you project forward, these cohorts as they assimilate in our overall ARR fabric, it should have a positive impact on our net retention going forward. And I do expect that newer cohorts that will come on will be similar. So, if you think Like the green shoots we planted last year will hopefully turn into like tall trees in a dense forest for some imagery there for you.
Understood and helpful. Thanks for the color there. You touched on people buying multiple products, so UCaaS, CCaaS. You touched on sort of the integrated offerings. Maybe I'll turn this to all 3 of you.
But obviously, you saw Zoom acquire Five9s And sort of the space, we've talked about consolidation space, you've talked about ARR, net dollar retention rates being driven by cross sell and up sell. I'd love to get sort of your thoughts, whatever you're willing to share, a, about that acquisition and its competitive pressures and kind of how you see yourself sitting in the space vis a vis the Zoom F9 combination? Thank you.
I'll take that. This is Anand Haber, and good to talk to you. So this is what I would say. See Zoom and Five9 have been partners for 2 plus years and we are actually pretty thrilled about our win rates against them over the last two and a half years. The other things I would probably offer up is, if you just look at our strategy, We've been working with NICE inContact for 6 plus years.
We saw this UC plus CC trend long before it has become fashionable as it is right now. We have a deep integration within Contact. And in fact, what you see is there's no other Gartner Magic Quadrant leading deeply integrated UCaaS and CCaaS solution outside of RingCentral Contact Center. And that is what is making a difference. And as you know, we just extended our partnership for a long time to come with NICE inContact.
And we're seeing great fight. You heard Mitesh talk about our contact center performance. We actually closed multiple $1,000,000 TCV contact center wins in July, in the last 2 weeks after these announcements. So we're feeling pretty good about the value we bring to our customers with our
solution.
Thank you. Our next question today is coming from Terry Tillman from Truer Securities. Your line is now live.
Hopefully, the rest of Call, we can get to some 49s or 59s. But maybe, Anand, maybe for you, you talks about Microsoft. That's interesting in terms of what's going on there. I'm curious, is it sporadic and opportunistic? Or are you able to create kind of plays here or something programmatic going forward that you have good visibility in terms of maybe the Microsoft opportunity actually growing from what you've
So, it has Your question has many layers of answers to it, Terry. The first thing is, when we compete with them head to head on UCaaS opportunities, our win rates have been holding very good and very stable. So that's one. The second thing I would say is, I mean, obviously, Microsoft has a huge Teams installed base as we all know. And with the ability to integrate with Microsoft Teams via direct routing, that's a tailwind for us.
We had multiple $1,000,000 plus TCV wins using direct routing. And so we view that, the base that Teams installed base as an incremental opportunity. It opens up a new segment of the market. That's very good. And the third thing is, as important, once we get in, it also gives us the opportunity to upsell to CCAP, to contact center.
And so those are the 3 layers, which is actually making us feel pretty good about how we compete with them when we compete head to head and how we integrate with them and open further upsell opportunities when we connect with them on their installed base.
Got it. Thank you for that.
And I guess, Mitesh, just a follow-up question. As it relates to this accelerating growth at scale that you've They've been exhibiting here over a number of quarters. I would love to unpack a little bit more in terms of the drivers, Particularly international. And so that's kind of real time on what you've seen recently and going forward, how important is international on this continued High growth of scale. Thank you.
Yes, sure. I mean, if you take a look at it in this overall Cloud on premise market of 400,000,000 seats,
half of them are international.
So So, it becomes a very, very important growth vector for us. And right now, international for us is, call it, over 10%. With all the partnerships we have, with Falcon and Lucent, Atos, Vodafone, Deutsche Telekom, I think over time, It would be not unreasonable to expect that our mix of the international piece will be in the high teens over the next couple of years. So, we feel very are positive and bullish about the overall international opportunity, because there's a lot of momentum we have there. We had multiple wins This quarter as well, over $1,000,000 in the international front.
And there's a lot of work we are doing internationally to increase the mix there and grow rapidly.
Operator?
Sorry about this folks. I think This service provider we are using is having some technical difficulties. It seems like some other companies are having this too. So Apologies for this. Hopefully, these guys get the systems back on track in the next couple of minutes here.
So, apologies about this. Unfortunately, we don't control the queue or anything. Otherwise, we have just done it directly.
Our next question is coming from Sterling Auty from JPMorgan. And I'll return to the queue at this point.
Thanks. Hi, guys. And Mitesh, yes, my team is on other calls And actually, I only did have one question that I was going to ask, and it's more of a high level, longer term question. And I'm getting it from a number of investors wondering, given the explosion, the use of video solutions, RingCentral Video, Zoom, etcetera, There's a question as to whether we're going to see contraction in the number of business telephony users. So we often talk about over 400,000,000 business phone users that would shift to the cloud.
Are you concerned that that number may end up being Fracturing of that over time, yes or no? And how do you think that impacts your business over the long term?
I'll take that. So short answer is no. We're not concerned about business contraction by any stretch of imagination, because if you look at The number of seats we have in the cloud, we are still talking about picture favorite analysts, 14000000, 15000000 seats in the cloud right now. And compare that to the opportunity at hand $400,000,000 $450,000,000 there's still a long way to go before we see any sort of contraction. That's number 1.
Number 2, what we also see is as companies return to the office, it is about having a way to meaningfully work in a hybrid manner. This is where the power of a unified app across multiple modes, message, video and phone is making a huge difference. That's number 2. Number 3, we do see the same momentum and velocity of and this is reflected in our pipe. Our pipe is the strongest it has ever been as we exited Q2.
And that tells us that the amount of companies who are Looking at making a communications decision for the future is increasing at the same rate and the same velocity. So all the early trends we see, how it reflects in our pipe and our customer conversations, we feel pretty bullish about the opportunity ahead of us.
And Sterling, if I just may add, Anand, if I can just add to the 2 simple points here. It's excellent commentary you gave. But Overall, Sterling, if you think about what video conference is doing here, it's in a way it's replacing its audio conferencing in a preplanned manner. So this conference call, right, for example, we are having, which is a preplanned call. Next time, we'll probably do it on RingCentral Video.
It's a preplanned call. But that does not changed the need for customers to communicate with businesses. How if I were to reach JP Morgan, how would I reach that? I cannot just do a video call with JPMorgan or with Sterling Auty, right? So that central nervous system like an email system, it's a very different need to have a communication system versus a collaboration tool, which is replacing audio conferencing, which is very transitory.
So It's 2 different markets. It's not either or, it's not in turn off, it's in addition
That makes sense. Thank you.
Thank you. Next question is coming from Meta Marshall from Morgan Stanley. Your line is now live.
Great. Thanks. And maybe building on Sterling's question of just the other investor Deep dive that investors have been wanting to do over the past couple of quarters is just on pricing. So if you could just give any commentary on what you're seeing in pricing in The market that would be helpful. Thanks.
Sure, Meta. I will take that. And thank God that there has been no hiccups here between you and Sterling here in conference. So perfect. So pricing overall, I did call out in my script that the pricing overall trends, ARPU, have held steady.
If I were to further disaggregate that, in the enterprise side, of course, there is volume discounting Fact of Life. But on the other side, we are seeing enterprises take on more upper end bundles along with contact center. So what we're seeing is a deal ticket our PAW, average revenue per account, is actually going up. And that's helping our overall lifetime value to CAC ratios. And in terms of the SMB side, pricing is holding very steady.
So net net, if I look at the ARPU trend, holding very steady despite some of the rhetoric you may be hearing outside. So, we don't see that. Yes.
Thank you. Next question is coming from Samad Samana from Jefferies. Your line is now live.
Hi, good afternoon. So, Mitesh, I think during the quarter you might have mentioned a range of the number of seats that Ring has. But I was just wondering if you could maybe Give us an update on maybe more precisely how many seats the company has because if I do the math, I think it implies you've got About $2,000,000 over the last 2 years yourselves, and I think that may be underappreciated.
So just how many seats does
the company have? And how does that compare to the, I think the $2,000,000 ish or so you had when you first signed the partnership with Avaya.
Sure. So, Samad, ultimately, in my mind, yes, so we did give out disclosure in the quarter last time between 3,500,000 and 4,000,000 seats. But here's the thing, right? We can all get I understand and I totally understand the spirit of your question here about the seats, because other companies are giving out seats. But ultimately, we don't quite manage our business to seats.
We do manage our business to ARR. And it's just not about the seats, right? It's about the dollars you get for And the value you can extract from the seat. As I was telling Meta, our ARPU has been holding flat. And what I can tell you is that we have added more seats than last year with our differentiated platform, so which has led to a strong performance for us.
Now, if you just take a click up and the big picture here, there's 400,000,000 seats here, whether it's 3.5 or 4, The entire cloud market is 15,000,000 seats. And we have a straight shot at 180,000,000 preferred access with the 3 As. So I feel, seats aside, we feel really good about how we will compete in the market and gain market share.
Great.
And great to see the strong acceleration again this quarter. Thanks for taking my questions.
Thank you. Next question is coming from George Sutton from Craig Hallum. Your line is now live.
Thank you. You talked earlier about wanting to add even more partners and obviously I assume part of it is the letters B and beyond. But I'm curious how broad you're thinking about the partner opportunities outside of specifically the telcos?
So when we look at partners, this is Anand, and good to talk to you, George. So when we look at partners, we look at it in 3 layers. The first is the channel community, which I spoke about early in the call with Terry's question. The second is the global service providers. And You have carrier partners, but you also have MSOs, you have different flavors of service providers.
And you know that we announced Verizon Business, We announced Deutsche Telekom. We announced several regional carrier partners. And we feel that's just the beginning. So you're going to see that as a key focus for us global service providers. The third is what we've talked about, which is Avaya, Alcatelulcent, Enterprise and Atos Unified.
So with these three layers of partners, we feel there's a huge amount of opportunity in the years to come to convert their on premise base to the cloud and the exclusive path to the cloud is RingCentral for them. Great.
I just wanted to add to that, George. Hi, Vlad here. Yes, to what Anand said, if you just look at the GSP Look, there are about 700 service providers in the world. BroadSoft, a few years ago ended up licensing their software stack to many of them, maybe most of them. And but since then, they really have not been successful in the cloud With our cloud offering and obviously the unended upselling to Cisco, etcetera.
So, at this point, given the momentum we have and the pipe we have, We are pretty optimistic that what we've announced so far, which is Frankly, pretty remarkable was the volume business, right, business, Deutsche, like Anand mentioned, the originals. But that's typical dialogue. We think there is a lot more there. And as far as moving beyond the letter A, well, I do feel that we have Exhausted letter A, but there are other letters in the alphabet. Obviously, it's a much shorter list than with the GSP.
But again, I would not necessarily assume that we're done with traditional on prem PBX providers as far as being a platform of choice for them moving forward. So, more to come here. And as you all know, we have promoted Samayun, we've announced today to an EVP, Extremely Rob Dird, and he's assembled a team that really is going on in the industry. So
Thank you. Our next question is coming from Michael Turrin from Wells Fargo. Your line is now live.
Hey, that might be 3 in a row, Actually 3, 4 in a row. It's a strong showing. So happy to make it on. Mitesh, the metrics here look pretty clean. The one question I do have is just given the uptick in growth you're seeing, maybe the direct and partner ARR split you've broken out isn't maybe surprises and kicking in even a touch more given the number of partnerships we've layered on.
So maybe you can just remind us and help level set what's in that metric and where we are from a timing perspective with some of those partnerships as well? Thank you.
Yes. Sure, Michael. So the direct in partnership includes our direct business obviously and all the partnerships We have, which is the 3 As and the GSPs, which George was also asking earlier. And look, if you take a look at The numbers there, we accelerated 9 points year over year on that metric. And All our turbo engines are yet to even fire in a way.
Right now, what are we seeing here? So we have got Avaya in the early days, Athos just about ramping. Alcatel Lucent yet to show up in 2022. Verizon just launched, so again, a 2022 story. And Vodafone and Deutsche Telekom will also be in 2022 and beyond.
So I think this metric over time, This is the upshot, right? You have access to this 180,000,000 seats exclusively. And this is the gift that's going to keep on giving in the long term, because it's not one and done. And we will keep ramping and adding more and more momentum and putting more and more wood behind these arrows. So more to come here.
That's good context. Thank you.
Yes.
Thank you. Our next question is coming from Matt Niknam from Deutsche Bank. Your line is now live.
Can you shed some more light on the change at the Chief Revenue Officer level, what drove this? And then maybe secondarily to that, what was the impetus for creating the Chief Customer Officer role? And what do you hope to achieve from my new position? Thanks.
That's a great question, Matt. So first thing, Phil has just decided to move on to the next Chapter of his life journey and he's going to focus on nonprofits and the venture community. So that what We are excited about it. We have been very intentional about succession planning and building a leadership bench. So if you look at the quality of people we have promoted, Carsten Hosterdeld has been here for 5 years.
He has tens of years of depth in our domain and he launched our enterprise business literally from scratch, from 0. And as we share today, it's growing 60%, it's going to cost $600,000,000 So Carson comes in with that gravitas and experience, and we're excited to have him as the new CRO. Now Faiza literally did the same thing. She stood up our SMB business. And she comes in with that depth of the customer obsession and the attention to detail, which is going to be the right fit for the Chief Customer Officer.
And as you know, With any SaaS business, one of the most critical things is net retention. Now how do you make sure that we have churn to the lowest levels possible? How do we make sure that NPS is something every employee lives and dies by? And then how do we make sure that net retention is constantly proceeding in the right direction? That is what Pega is going to be accountable for, leveraging the organizations of customer support, professional services And professional services, so and customer success.
So that is a very, very, very important role in the new world. And Vlad already talked about Humayun. Humayun, in the last 18 months, he accelerated our existing partnerships with AT and T, BT and TELUS, but he has also brought an incredible team with deep relationships across the service provider community, where in 18 months we have Vodafone, Verizon, Deutsche Telecom, several regional partners, carrier partners and many more to come. So we feel really good about the depth of bench we have in the company to actually take this to the next level.
Thank you. Our next question is coming from Matt Van Vliet from BTIG. Your line is now live.
Nice job on the quarter. You highlighted particular success in Financial Services and Healthcare, and I don't know it's been an area that You've been investing in vertical teams. I guess, do you need more are you looking at more vertical teams out there? Are there additional investments? Are you comfortable with where you're at now in terms of that specialization and it's really just about execution and efficiency from here?
It's a great question, Ashley. We've talked about financial services and healthcare. Obviously, we have also focused on education. We have focused on retail. So verticals is a continually evolving focus for us.
But the reason we also called it out in different It's not just a direct teams and our vertical focus, which is making a difference. We see vertical traction across every partner. So that's where we called out the vertical traction we have with AT and T, with BT, with TELUS, with Avaya, with Atos. So we are seeing this come across in every single partnership we have. And so it compounds, that's where success compounds itself In terms of the vertical wins, we were able to announce as part of this cycle and going forward.
Thank you. Our next question is coming from Ryan Kuntz from Needham and Company. Your line is now live.
Thanks for the question.
I want to ask about your applications integrations there. And obviously, it's a competitive advantage you have against most of your peers.
Can you maybe walk us through a couple of
the simple use cases On the integrations, we feel like you're differentiated and you can really flex your muscles there? Thank you.
Yes. And Vlad, feel free to chime in as well. So when we look at integrations, we look at it in 2 different ways. 1, There is we have a very vibrant ecosystem of developers and integrations. We have 5,500 integrations, 55,000 developers and growing and that essentially is self accelerating momentum.
That's making a difference. And obviously, you have the usual suspects, which is well known, like our deep integrations with Microsoft and Google and Salesforce and Slack and so on and so forth, but many more. So there's one there. The second thing I would call out, which is not so evident, is relating back to the last question on vertical strength. This is where we are also starting to integrate with specific vertical applications, which are systems of record for each of these verticals, like when you look at education and we're looking Marsh, we're looking at the healthcare specific applications and systems of record and integrating there.
So those are the 2 Layers of integrations we are doing, 1 through the platform and open ecosystem and second through a vertical veneer. What I'd like to add
to that is, look, our Integration capability and our ecosystem of integrations is numbers are there, 2nd to none, leading in some areas. But most important thing about our integration is not who we integrate with, but what we integrate. And what we integrate is RingCentral. And what makes RingCentral interesting to integrate with is the fact that we are worth only Five9's fully global, fully distributed and redundant platform That has not that has been at 5.9 for I think 13 quarters now. There is for those of you who are not aware or Kevin, recently, there is an independent service called the Down Detector, downdetector.com, which tracks outages across a good number of major providers.
And I would simply urge people to Do your own checking. You can compare RingCentral to some of our competitors, some Other people in the industry, you can guess your own names, I suppose. I have to say that when you type in RingCentral, You're not unlikely to get a complaint that my doorbell stopped working. Obviously, people are confusing us with Ring. But beyond that, we have not had a noted issue Since last February, okay, and that one was minor.
This chart is simply unparalleled. So when we talk about, again, integrations, RingCentral standalone, but as you all know, we are all about partnerships, including partnerships with ISVs and other applications vendors. This is what we are uniquely positioned to provide, Five9's Reliability, unquestioned security and world's largest global footprint That by the way is being fortified and extended in real time through our most recent partnerships with companies like Verizon, like Vodafone, Deutsche Telekom, you can only imagine the type of reach and quality of service that we will be able to provide over and above what we already do as we get further integrated With an integrated networks.
Super helpful for that. Thank you.
Our next question is from Catharine Trebnick with Calea. You may proceed with your question.
Yes, excellent quarter. Thanks for taking my question. This is probably pretty much a softball question, but Can you discuss how often you really see Zoom, Zoom phones in some of the channel? Because that would speak to the maturity of their Channel partners and maturity of how well you're really doing. I know because everybody is always asking us on the sales side what the seat count is.
I'm just trying to get another way to 0 in on that. Thanks.
That's a great question, Catherine. And so When we look at UCaaS opportunities in the channel, we see we don't see them too often, they're there. We are really happy with our current position and our win rates in these head to head UCaaS opportunities. When these Opportunities then expand and there are, as we just shared, over 60% of our large deals includes the contact center. So when these opportunities expand to be a UCaaS plus CCaaS conversation, we just don't see them at all, because At that point, the combination of inContact and RingCentral, you get 2 GartnerMQ leading companies as the foundation for RingCentral Contact Center.
And we are really thrilled with our win rates across the entire industry when it comes to a UCaaS plus CCaaS play. So So we are pretty thrilled about where we are. When we compete, we are really good. And when it expands, we don't see them at all.
All right. Thank you.
Thank you. Our next question today is coming from Taz Koujaghi from Guggenheim Partners. Your line is now live.
Hey, guys. Can you hear me? Hello? Yes, we can hear you, guys. Thanks for taking my question.
I have a question about your combined UC and CC strength. You've been very You sounded very positive
on the strength you saw with contact center and then combined UC and CCDs. Can you provide some more color on what kind of ASP or I guess per seat pricing uplift you get When you have a CCD versus UC or when you have a combined UC and TCD versus a pure UC deal?
Nitesh, do you want to take that on pricing? Sure.
Yes, I can take it. It's hard to provide you exact specific task, but think of the rough Matt, as CC market is about 10% of the UCaaS market and The ARPU on the seat itself is 2x to 3x higher. So it's deal specific. It's hard to use one Common denominator of what the exact uplift is. But needless to say, this combination, if If you look at the market from a market share point of view, this combination is definitely yielding a lot of wins.
And the CC alone is growing much faster for us than the overall installed base.
Got it.
And have you provided any kind
of data points on the mix today of, I guess, CC revenues or CC seats versus your overall numbers?
Sure. I think last quarter when we In the partnership with inContact, we said that the CC business is over 10% of our overall business. And so that's the last
Kevin, who do we have next?
I think, because of these technical difficulties, I apologize. I think we just have to call it a wrap here. It goes to 3:15 here. We will definitely follow-up 1 on 1 with Everybody else who didn't get a chance to ask the call and next time, this is an opportunity for all these service providers to use platforms like RingCentral. So, Sorry about this.
Stay tuned and we'll talk soon. Goodbye everybody.
Ladies and gentlemen, we do apologize for the technical difficulties. That does conclude today's teleconference and webcast. You may now disconnect.